Turmoil at auto parts suppliers boosts recovery products

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The recent turbulence within the US auto parts industry has highlighted the need for hedging recovery risk and predetermining the recovery rate of a bond in advance of any default.

Auto parts supplier Collins & Aikman filed for Chapter 11 protection in May and investors have seen the performance of the firm's debt nosedive. Spreads on Collins & Aikman's 10.75% 2011 bond careered from 600 basis points over asset swaps in February to 1,800bp after the filing.

Following default, the auto supplier

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